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IPO Report: Advanced Drainage Systems (WMS)

Advanced Drainage Systems (WMS) is the leading manufacturer of high performance thermoplastic corrugated pipe, providing a comprehensive suite of water management products and superior drainage solutions for use in the construction and infrastructure marketplace. It is headquartered in Hilliard, OH.

Ten other companies are scheduled for the week of July 21, 2014. The full IPO calendar is available at IPOpremium.

WMS scheduled a $261 million IPO with a market capitalization of $950 million at a price range midpoint of $18 for Friday, July 25, 2014 on the NYSE. SEC filings

Advanced Drainage Systems IPO Report

Overview

WMS is the leading manufacturer of high performance thermoplastic corrugated pipe, providing a comprehensive suite of water management products and superior drainage solutions for use in the construction and infrastructure marketplace.

The fiscal year ends in March. For the March 2014 year WMS 's revenues increased to $1.069 billion, up 5% from the year before. Net income declined 57% to $13 million.

The P/E based on fiscal 2014 is 73, very high for a mundane business. The price-to-sales ratio is 0.9.

Valuation

Conclusion

The rating on WMS is neutral minus. Earnings have declined the last two years and the P/E is 73.

Business

WMS is the leading manufacturer of high performance thermoplastic corrugated pipe, providing a comprehensive suite of water management products and superior drainage solutions for use in the construction and infrastructure marketplace.

WMS’s innovative products are used across a broad range of end markets and applications, including non-residential, residential, agriculture, and infrastructure applications.

WMS has established a leading position in many of these end markets by leveraging its national sales and distribution platform, its overall product breadth and scale and its manufacturing excellence.

In North America, WMS’s national footprint combined with its strong local presence and broad product offering makes it the leader in an otherwise highly fragmented sector comprised of many smaller competitors.

WMS believes the markets it serves in the United States represent approximately $10.1 billion of annual revenue opportunity.

In addition, WMS believes the increasing acceptance of thermoplastic pipe products in international markets represents an attractive growth opportunity.

WMS’s products are generally lighter, more durable, more cost effective and easier to install than comparable alternatives made with traditional materials.

Following WMS’s entrance into the non-residential construction market with the introduction of N-12 corrugated polyethylene pipe in the late 1980s, its pipe has been displacing traditional materials, such as reinforced concrete, corrugated steel and polyvinyl chloride, or PVC, across an ever expanding range of end markets.

This has allowed WMS to consistently gain share and achieve above market growth throughout economic cycles.

WMS expects to continue to drive conversion to its products from traditional products as contractors, civil design engineers and municipal agencies increasingly acknowledge the superior physical attributes and compelling value proposition of its thermoplastic products. In addition, WMS believes that overall demand for its products will benefit as the regulatory environment continues to evolve.

Building on its core drainage businesses, WMS has aggressively pursued attractive ancillary product categories such as storm and septic chambers, PVC drainage structures, fittings and filters, and water quality filters and separators.

WMS refers to these ancillary product categories as Allied Products. Given the scope of its overall sales and distribution platform, WMS has been able to drive growth within its Allied Products and believe there are significant growth opportunities going forward.

Dividend Policy

WMS has a history of paying dividends to its stockholders when sufficient cash is available, and WMS currently intends to pay regular quarterly dividends in the future after this offering.

WMS has not currently set its initial quarterly dividend; however, WMS anticipates that the dividends it pays will be comparable to the dividends paid during fiscal years 2012, 2013 and 2014, excluding the one-time special dividend described below.

During fiscal years 2012, 2013 and 2014, WMS declared dividends on its common stock of approximately $4.3 million, $4.8 million and $80.1 million ($76 million of which related to the one-time special dividend), respectively.

Intellectual Property

WMS uses various trademarks, service marks and brand names that it deems particularly important to the marketing activities and operation of its various lines of business, and some of these marks are registered in the United States and, in some cases, other jurisdictions. This prospectus also refers to the brand names, trademarks or service marks of other companies. All brand names and other trademarks or service marks referenced in this prospectus, including N-12®, SaniTite®, StormTech®, Nyloplast®, Inserta Tee®, BaySeparator™, BayFilter™ and FleXstorm™, are the property of their respective holders.

Competition

In the United States, WMS‘s primary competitors are concrete pipe producers, including Cemex, Hanson and Oldcastle CRH Precast, as well as smaller, regional competitors.

In the corrugated steel pipe sector, WMS’s primary national competitor is Contech Engineered Solutions, and WMS competes with Lane Enterprises, Pacific Corrugated and Southeast Culvert on a regional level, as well as other smaller competitors.

In the PVC pipe sector, WMS competes primarily with JM Eagle, Diamond Plastics and North American Pipe.

WMS is the only corrugated HDPE pipe producer with a national footprint, and its competitors operate primarily on a regional and local level. In the corrugated HDPE pipe sector in the United States, WMS’s primary competitors on a regional basis are JM Eagle, Lane Enterprises and Prinsco.

5% stockholders

ASP ADS Investco, LLC 57.42%

ESOP 29.60%

University of Notre Dame du Lac 10.10%

Joseph A. Chlapaty 20.75%

Use of proceeds

WMS intends to use the $83 million in proceeds from its IPO as follows:

to repay at least $82.9 million of outstanding indebtedness under the revolving portion of its credit facility. WMS intends to use the remaining proceeds (if any) for general corporate purposes, including working capital.

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